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Everything There is to Know About Health Insurance Deductions

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Everything There is to Know About Health Insurance Deductions

There’s nothing worse than getting sick or caught in a medical emergency. With access to the right doctors and proper health insurance, you’ll be back in working order in no time. Typically, you have access to health insurance through your employer. But as a freelancer or self-employed individual, you’re responsible for providing your own health insurance and paying self-employment taxes. The reality is that everyone needs a healthcare plan, regardless of their employment status. Without one, you could face high medical bills, and that’s the last thing you want to worry about when you’re sick. Working as a freelancer or self-employed individual comes with many perks and responsibilities. The good news is that there’s self-employed insurance to tackle any curveballs. With health insurance being one of the largest expenses the average American has to pay, you may be wondering, is self-employed health insurance tax deductible? Or, are life insurance premiums tax deductible? We’ll answer these questions and provide you with guidance for self-employment health insurance.

Table of contents

Key takeaways...Read more

Is health insurance tax deductible?...Read more

Self-employed health insurance eligibility criteria ...Read more

Can you receive health insurance from an employer as a 1099 worker?...Read more

What types of health insurance can self-employed individuals get?...Read more

Health insurance for self-employed individuals...Read more

Medicaid...Read more

Affordable Care Act...Read more

Freelancer’s Union...Read more

Solar panels...Read more

COBRA...Read more

Individual Health Insurance Marketplace...Read more

Premium tax credits...Read more

Health insurance tax deductions for self-employed individuals...Read more

Is life insurance tax deductible?...Read more

Finding tax for deductions self-employed individuals...Read more

Key takeaways

  • Self-employed individuals can deduct health insurance premiums when itemizing their deductions
  • There are different types of health insurance options available to choose from
  • Life insurance premiums are typically not deductible, but there are a few exceptions when it can be deducted

Is health insurance tax deductible?

When you’re on a company’s payroll, your employer usually provides you with healthcare. But as a freelancer or self-employed individual, it’s your responsibility to enroll in health insurance. The good news is the IRS allows you to deduct health or medical insurance premiums on your taxes. You can deduct health insurance premiums if you itemize the deductions, pay the self-employed health insurance premium directly or if your medical expenses are more than 7.5% of your adjusted gross income. Premiums are like a monthly membership fee for your healthcare policy. But they don’t include deductibles, co-pays, prescriptions or other expenses you need to pay out of pocket. If you're self-employed and looking for more deductions to claim, you can use a freelance tax calculator. So are health insurance premiums tax deductible? Yes, they are if you meet the mentioned criteria.

Self-employed health insurance eligibility criteria

The main thing to keep in mind when purchasing self-employed health insurance is how to get the best benefits from your plan. You don’t want to pay for a plan that isn't in line with your medical requirements. Try to get price quotes from different healthcare providers about the plans to compare coverage and prices. Full coverage purchased directly from an insurance provider can be downright unaffordable, but Healthcare.gov offers a range of alternatives at the Individual Marketplace if you qualify. Tips for getting insurance through the Healthcare Insurance Marketplace include:
  1. As a self-employed individual, your business cannot have any employees apart from your spouse or a family member.
  2. The annual open enrollment period for the Individual Marketplace is November 1st through January 15th.
  3. If you miss the open enrollment period deadline, you can enroll in a policy under Special Enrollment. This allows you to apply for a health plan if you have qualifying life events like loss of healthcare due to unemployment or getting married within the last 60 days.
  4. You can cancel your Individual Marketplace self-employed insurance if you take a job that offers health benefits, whether you enroll in the company health plan or not.
  5. To qualify for premium tax credits, you will need to show your estimated annual household income for the year of coverage you are planning to purchase insurance to cover. If your income changes during the year, you will need to update this on Marketplace.
Note: If you earn more than the figure you reported on Marketplace by the end of the year, you may need to pay back a portion or all of the premium tax credits you received in advance during purchase. If you end up earning less than the amount you reported on Marketplace, you may receive additional tax credits while filing your taxes for the year.

Can you receive health insurance from an employer as a 1099 worker?

The universal assumption is that 1099 workers, including freelancers, independent contractors or gig workers, do not receive healthcare coverage from their employers. But in rare circumstances, freelancers can receive health benefits from their hiring company if the benefit compensation is reported as an employer contribution and added to the self-employed person's taxable income. If your hiring company does offer you health benefits as a self-employed individual, you can enroll in the standard group plan offered to the W-2 employees but pay for your own premiums.

What types of health insurance can self-employed individuals get?

You can purchase an insurance plan directly from an insurance provider, through a state program, or on the American healthcare website. The plans for self-employed workers are flexible based on your annual estimated net earnings. All the plans are designed to cover 10 categories of health insurance outlined by the Affordable Care Act. Dental coverage for adults is optional, but they include essential health benefits like doctor’s consultations, hospital care, medical prescription coverage and pregnancy. If you are more inclined toward plans offered by private insurance providers, make sure to compare their pricing with the benefits they are willing to offer and see what best fits your needs.
Infographic entitled Mandatory Health Benefits Under the Affordable Care Act listing the coverage for self-employed health insurance.

Health insurance for self-employed individuals

Insurance plans that give you benefits in line with your annual income and medical requirements can be found through the federal government, your state of residence or sometimes directly from insurance companies.
Infographic entitled Freelancer Health Insurance Options listing the plans for freelancer health insurance.

Medicaid

Medicaid is a free public health insurance for self-employed people who have a low-income status. Each state owns and operates its own variant of the program, with some help from the federal government. There are different eligibility requirements depending on your state.

Affordable Care Act

The Affordable Care Act (ACA,) also known as Obamacare, offers medical insurance for self-employed people and freelancers. Previously, the ACA required every US citizen to have health insurance coverage for themselves and their families or face a penalty from the IRS. This mandate no longer applies except in Massachusetts, New Jersey, Rhode Island, Vermont, California and the District of Columbia. Having a preexisting condition or a major disease won’t stop you from getting self-employed health insurance coverage under ACA. You can apply for health insurance plans online on health insurance exchanges or marketplaces.

Freelancer’s Union

The Freelancer’s Union is a nonprofit offering health insurance plans for self-employed individuals in a number of states, including New York, California, Colorado, Connecticut, Florida, Georgia, New Jersey, Pennsylvania and Texas. The coverage is a bit pricey, but you can select a plan on the basis of your age, income and location.

Solar panels

As soon as you have solar panels on your home, you start saving money immediately, but installing them benefits you tax-wise, too, at least until the end of 2023. This is because the federal government introduced the Investment Tax Credit in 2006 to give homeowners a break on their taxes if they start to use clean energy technology. The tax credit works for other forms of clean energy outside of solar panels, but solar energy is the most feasible for most homes nationwide. You might be asking, "Is a tax credit the same as a tax deduction". Usually, tax credits give you much bigger savings. When you take a deduction for, say, a business lunch you had with a client, you deduct the price of that restaurant bill from the income tax you owe. When you receive a tax credit from the government for installing a solar panel system, you can deduct 26% of the cost from your income tax. That's if it's installed in 2022 or 2023. After that, the credit is no longer available.

COBRA

COBRA, or the Consolidated Omnibus Budget Reconciliation Act, is a healthcare option if you lose your job, receive reduced working hours or leave full-time employment, which may lead your employer to stop paying your healthcare premiums. COBRA allows you and your dependents to stay on the same coverage, but you have to cover the self-employed health insurance costs (premiums) on your own, making this an expensive option. The coverage usually lasts up to 18 or 36 months.

Individual Health Insurance Marketplace

The Health Insurance Marketplace is a part of the ACA, providing different coverage options. You need to keep an eye out for the enrollment period. Generally, it takes place from early November to mid-December, with coverage starting in the new year.

Premium tax credits

The premium tax credit is available to low-income freelancers under the Health Insurance Marketplace. You can qualify for the premium tax credit if you make 100-400% of the federal poverty level for your household size. Only health insurance plans bought through the Health Insurance Marketplace and websites linked to the Marketplace are eligible for this premium tax credit. If your annual earnings are high, you will not qualify for the subsidized insurance offered under ACA. You can always opt for plans that have a high tax deductibility. You would receive medical coverage, and deduct your premium payments from your self-employed health insurance to reduce your taxable income. It could possibly increase your tax returns as well.

Health insurance tax deductions for self-employed individuals

As a self-employed individual, are you asking yourself, can you deduct self-employed health insurance premiums? The good news is that you can deduct the entire annual self-employed health insurance premium that you paid for yourself, your spouse and your dependents from your taxable income, regardless of whether you itemize your deductions or not. Since health premiums are often expensive, deducting them can considerably reduce your taxable income, saving you money while you ensure you're medically protected. Just remember that you cannot deduct annual premium payments that amount to more than your annual income in a tax year. If your premiums end up costing more than your income, you can claim the health insurance deduction up to your annual income amount. You may be able to claim the excess as medical expenses on your Schedule A, where you list personal deductions. If your expenses were greater than your income for the year, you won’t be able to claim this deduction. You may not be eligible to deduct your health insurance for self-employed premiums if:
  • Your spouse or live-in partner has a job that extends their healthcare benefits to cover you, but you have refused the coverage
  • You are self-employed but have secured another job that offers a health plan
  • You are eligible to participate in your employer’s health insurance deductible plan but opt not to
The Internal Revenue Service has outlined the requirements that policy premiums must meet for a self-employed person to claim them as a health insurance tax deduction.

Is life insurance tax deductible?

Life insurance premiums are generally not tax-deductible, but there are some exceptions and specific circumstances where life insurance premiums may be tax-deductible. The premiums may be tax-deductible if you purchase life insurance as a business expense or as part of a business agreement. This is typically applicable for key person insurance or business-owned life insurance (BOLI) in the context of a business. In some cases, alimony payments may include life insurance premiums as part of a divorce agreement. In such cases, the premiums might be tax-deductible. While not directly related to life insurance, you can deduct the cost of health insurance, which can include a portion of life insurance premiums if the policy has a component that provides for long-term care or critical illness coverage.
Infographic entitled Top Rated Life Insurance Companies listing the most popular companies for self-employed life insurance.

Finding tax for deductions self-employed individuals

FlyFin's A.I. is built to find all possible deductions from your expenses, including your health insurance deductible premiums. The FlyFin CPA team can offer unlimited support for any questions you have, and are ready to file your taxes at a fraction of the market cost, on time and with 100% accuracy. You can also use FlyFin's estimated tax calculator to figure out your quarterly tax payments. Save more money and time on your taxes than last year, guaranteed.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Business Insurance Tax Deduction

Self-employed individuals can deduct business insurance expenses from their 1099 taxes. Sole proprietors and single-member LLCs can claim it on Schedule C.

Meals Tax Deduction

The meals and entertainment deduction in 2023 allows 1099 workers to deduct 50% of business meal costs. Certain meal and entertainment expenses are still fully deductible.

Business Travel Tax Deduction

Expenses related to traveling are deductible for business purposes. A per diem rate is set for deductible travel expenses.

Charitable Contribution Tax Deduction

If you make a charitable donation to an organization, it might count as a tax deduction. Not all charitable donations count as a write-off.

Clothing And Accessories Tax Deduction

Self-employed individuals can take the clothing tax deduction if their clothes cannot be worn outside the work environment.

Commission And Fees Tax Deduction

Self-employed individuals can claim certain commissions and fees as tax deductions if they are related to their business and are ordinary and necessary.

Contract Labor Tax Deduction

If you do any contract labor, you will have to pay contract labor taxes, also known as SE tax. Estimated payments quarterly need to be made for tax liabilities over $1,000.

Internet and WiFi Tax Deduction

Self-employed individuals can deduct some of their internet bills if they work from home as part of the home office deduction. Internet costs can also be reported on Schedule C.

Medical and Dental Tax Deduction

Certain dental and medical costs can be claimed as a medical tax deduction if itemized when paying income taxes. Expenses have to be more than 7.5% of AGI.

Rent Tax Deduction

Rent is tax deductible for self-employed individuals who work from home or have a separate office space. Some states offer renters tax credits to lower state taxes.

Repair and Maintenance Tax Deduction

Capital improvements can be claimed as a tax deduction through depreciation. Repairs to rental properties can be claimed as a business expense.

Professional and Legal Services Tax Deduction

Legal fees are tax deductible from 1099 taxes under the legal and professional fees category on Schedule C. The category also includes consultant and tax prep fees.

Shipping Tax Deduction

Business-related shipping expenses are tax-deductible. Shipping supplies and the cost of shipping are included as write-offs.

Software Tax Deduction

Software depreciation can be claimed with the straight-line method, Section 179 or through amortization. Report software depreciation on Form 4562.

Student Loan Payment Tax Deduction

Student loan interest paid is tax-deductible, and every type of education loan qualifies for the deduction.

Taxes and Licenses Tax Deduction

Self-employed individuals can take the license fee tax deduction on taxes and licenses that are ordinary and necessary business expenses.

Training and Education Tax Deduction

The educator expenses tax deduction allows eligible educators to deduct $300 of unreimbursed expenses from their taxes. Use education tax credits to lower tax liability.

Utilities Tax Deduction

Utilities are tax deductible when they are an ordinary and necessary business expense. They can be claimed with the home office deduction or as a rental property deduction.

Vehicle Insurance Tax Deduction

Interest on a car loan is tax deductible if it is used for business. Choose between the standard and actual method when claiming the vehicle deduction.

Vehicle Purchase Tax Deduction

You can claim the vehicle tax write-off if you’re self-employed and use your vehicle for business. It can also be taken if you lease your vehicle.

Mortgage Interest Tax Deduction

The mortgage interest deduction can be claimed by homeowners who itemize their expenses. You could claim the mortgage interest tax credit if you’re in a lower tax bracket.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Business Insurance Tax Deduction

Self-employed individuals can deduct business insurance expenses from their 1099 taxes. Sole proprietors and single-member LLCs can claim it on Schedule C.

What’s FlyFin?

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